“We wanted to know how much money we owe our retirees, and how much of that money we don’t have.”
-Cook County Treasurer Maria Pappas (June 22, 2011)
We know the Federal and State governments are in serious fiscal trouble. Having overspent and over borrowed, they are now faced with the real prospect of having to reduce jobs, spending programs and retirement related benefits.
But the States and the Federal government are not alone.
During the boom times of entitlement spending and government largess leading up to the financial crisis, local governments that include cities and counties spent their share of forward earnings as well. And now those uncontrolled fiscal policies are coming home to roost.
For those Americans who have worked for decades with the hopes that their pensions, health care and other benefits would be there when they retire, we offer a glimpse into what the future may hold:
Cook County taxpayers are on the hook for a staggering amount of local debt, according to figures presented by Cook County Treasurer Maria Pappas today. Cook County’s numerous local governments face mounting debts totaling more than $108 billion. And, for the first time, specific figures have been collected for municipal unfunded pensions obligations totaling in excess of $25 billion, almost a quarter of debt countywide. The total figures translate into an average debt-per-household in the city of Chicago of $63,525, and $32,901 in the suburbs.
“We knew that debt and unfunded pension obligations were serious problems at the state and federal level and assumed that a similar pattern would follow at the local level. But, quite frankly, I was stunned by the depth of the crisis for local governments,” said Pappas.
“This goes well beyond big cities, where you expect financial challenges. These fiscal problems permeate townships, villages, school districts, park districts, fire protection districts and more, and the taxpayers are on the hook.”
Source: Cook County Treasure’s Office
Government employees may currently enjoy higher salaries and benefits than the private sector, but they have been given a false sense of security.
A single county, granted one of the largest in the country, is in hock for $108 billion dollars. That’s roughly 1/7 of the total TARP bailout given to banks in 2008. This is a very big number, indeed.
Whether you are a police officer, fireman, school teacher, or utility worker, you could have serious problems down the road.
While Ms. Pappas offerred some ideas to help reduce Cook County’s spending for the future, she provided no realistic solutions for dealing with the current deficit. The reason for this is obvious. There are no realistic solutions expect for either borrowing the money (and further indebting themselves with high interest) or reset by default.
In previous commentaries we’ve discussed the coming wave of State and local defaults, and it appears that the end game is close. Cook County is not alone, and chances are that every major metropolitan area in the country is heavily in the red. This means that the jobs and retirement futures of millions of people are under threat.
We’ll no doubt begin to hear about bailouts for States and counties in the near future, and if the Republicans and Democrats in Congress have their way, then blank checks are a foregone conclusion. The only other option will be for ex-Federal governments to start reducing benefits and firing workers. Politically, that is something our elected officials, even on the Federal level, are not going to want to deal with, so we are hard pressed to see a scenario where the Federal government lets these pensions go into default – essentially being wiped away. After all, they will do whatever it takes to prevent riots in the streets for as long as possible, even if this means kicking the can down the road for a couple more years and further compounding the problem (as has been the case thus far).
Like Greece, these governments will get the bailouts their hardworking employees deserve, only to saddle those counties and cities, as well as the entire nation, with even more debt.
Eventually, the Federal government will hit its (real) debt ceiling as well. That will happen when no one else but The Federal Reserve will buy the US Treasury’s debt issues, at which point the retirement accounts, 401k’s, savings and dollar denominated assets of every American will be completely and utterly destroyed.